1. Home
  2. Cash & Liquidity Management
  3. Cash Flow Management & Forecasting

Helping corporate treasurers navigate the Russia-Ukraine conflict

Uncertain times and resilience are words that epitomize the spirit of corporate treasurers over the last two years. First, it was COVID-19, and now it is Russia’s military offensive against Ukraine, the largest military conflict in Europe since World War II.

Against the backdrop of war-induced uncertainty and chaos, fluctuating currencies, employee displacement, turmoil in commodity markets, rising crude oil prices that could push up inflation and interest rates, and potential for extensive global supply chain disruption, corporate treasurers are expected to demonstrate more resilience since they are in charge of the lifeblood of an organization – cash. And staying resilient in a crisis will require farsightedness, adaptability, creativity and curiosity.

Resilience and conflict have now thrust corporate treasurers into the spotlight once again. This economic and humanitarian crisis presents its own challenges for the treasury department, and the attempt of this article is to help them navigate the crisis, mitigate its impact and shield themselves from future geopolitical conflicts or unexpected threats.

Supply chain sourcing and visibility

The COVID-19 pandemic exposed the vulnerabilities in global supply chains, and the Ukrainian invasion could have further cascading effects on supply chains. This can slow an organization’s cash flow and affect its ability to take on additional debt.

It is recommended that corporates diversify sourcing and logistics routes, weaning off dependency from one supplier (rare earth elements and raw materials) or one region. Sourcing, logistics and freight diversification will increase competition among suppliers, help reduce or eliminate delays and bottlenecks, overcome capacity constraints and enhance resilience and flexibility in the supply chain.

Improved end-to-end supply chain visibility or complete visibility into all tiers of the supply chain is important for evaluating potential multi-tier risk exposure. It allows the company to gain a better sense of where the problems lie and formulate the best risk response strategy, particularly among tier-1 suppliers. Mapping the sub-tiered suppliers and the corporation’s ecosystem of relationships with data, assets, business operations, and dependencies on the afflicted region (think energy, metals and wheat) will help assess the potential impact on the downstream supply chain.

Remember, reviewing business continuity plans, supply chain arrangements and local or global alternatives are also important for arrangement of increased stock where required and to create resilience in the supply chain.

Cash, liquidity and risk assessment

Corporate treasurers must be empowered to view their cash position in real time. This will ensure that when a disruptive, unpredictable or unexpected event occurs, they are prepared and can put together an up-to-the-moment global cash position with the means of updating it as frequently as required.

Treasury must, in many cases, upgrade to new technologies that can connect or integrate with their banking partners via application programming interfaces (APIs). Maintaining corporate-to-bank connectivity through bank APIs ensures that the transaction and account data flow is secure, faster, two-way, instant and on-demand (up-to-the-minute). This will give corporate treasurers full visibility of the global cash position, expediting decision-making and enhancing processing efficiency in treasury and cash management.

In times of war, corporate treasurers should focus on trying to maintain a larger liquidity buffer and reduce losses on investments. Communicating frequently with banking partners helps treasurers assess whether any credit lines need to be extended or renewed. Corporate treasurers should also review and renegotiate their credit facilities globally, particularly if interest rates are inching upwards. If the corporate is in an industry likely to be significantly impacted by the war, the treasurer may need to shift to longer-term debt to beef up liquidity in case banks tighten lending standards.

In a global crisis, it is prudent to tighten risk management practices and become conservative or risk averse in relation to all exposures. First, corporate treasurers ought to evaluate their total exposure to the conflicted region and limit it for reduced losses. This includes evaluating counterparty risk and currency volatility. Second, they should sever their ties with sanctioned banks. Third, they should watch for quickly changing economic sanctions that will warrant changes to their third-party ecosystem (suppliers, vendors, partners, customers and foreign associates) and assume that there will be further sanctions. Next, given that disaster recovery (DR) is a key component in business continuity plans, deploying the DR plan or executing the critical elements of the DR plan (backups, assets inventory, reroutes and cutovers) is necessary to mitigate business continuity risks.

Prepare for cyber-warfare

The Russian invasion has brought renewed fear of a global cyber-war. Corporate treasurers around the world must prepare for an onslaught of cyber assaults – wiper software, ransomware and other malware may be unleashed to weaken a corporation’s security posture. Russia is a formidable opponent in the cybercrime space and can unleash sophisticated cyber-attacks on strategic Western finance, healthcare, transportation, energy and communications networks and infrastructure.

If an organization’s security is compromised, it will result in substantial financial and branding damage. Reinforcing defence capabilities, integrating cybersecurity into business continuity planning and instilling a security mindset in employees are all imperative.

The first line of defence against cyber-attacks is employee training. Ensuring that there is companywide awareness of potential cyberwar threats and ongoing employee security training (securetreasury.com) that values cybersecurity can help mitigate current and future cybercrime threats.

Other recommended practices for shoring up security capabilities include adoption of a cybersecurity incident response plan, conducting a security audit, implementing testing procedures to back up and restore data, carefully examining supply chains, deploying new security layers, patching outstanding vulnerabilities, and engaging treasury security consultants and vendors to enrich cybersecurity intelligence.

To conclude, Russia’s invasion of Ukraine is a test for corporate treasurers and their resilience. They have weathered many a storm, including the pandemic and the financial crisis of 2008, and now they must gear up to face the financial, social and humanitarian implications of a war while laying the groundwork to protect themselves from future military offensives, armed conflicts or unexpected global economic crises. We hope that the proposed solutions in this article can alleviate the treasury-related risks and negative effects that threaten to disrupt the financial health of corporations worldwide.

Like this item? Get our Weekly Update newsletter. Subscribe today

About the author

Also see

Add a comment

New comment submissions are moderated.